Putin Warms to Cyprus Deal With Order to Renegotiate Loan

Russian President Vladimir Putin ordered the government to start talks with Cypriot authorities on restructuring a 2.5 billion-euro loan granted by Russia in December 2011. Photographer: Jochen Eckel/Bloomberg

March 25 (Bloomberg) -- Russian President Vladimir Putin
signaled acceptance of an accord reached by Cyprus on an
international bailout, a week after berating an earlier rescue
plan as “unfair, unprofessional and dangerous.”

Putin today ordered the government to start talks with
Cypriot authorities on restructuring a 2.5 billion-euro ($3.2
billion) loan granted by Russia in December 2011, the
president’s spokesman, Dmitry Peskov, said by phone. Terms
sought by Cyprus would amount to a 10 percent writedown of the
loan, Finance Minister Anton Siluanov said today.

“Considering the decisions taken by the Eurogroup,
President Vladimir Putin deems it possible to back efforts by
the Cypriot president, as well as the European Commission, aimed
at overcoming the crisis in the island nation’s economy and
system of finance and banking,” Peskov said.

The ruble reversed gains against the dollar, falling 0.2
percent to 30.8910 as of 7:04 p.m. in Moscow. The euro weakened
0.8 percent to $1.2890.

In acquiescing to the terms of a rescue package brokered in
late-night negotiations, Putin is tempering his indignation over
a proposed penalty on Cypriot bank deposits as a result of a
financial-industry overhaul.

Rescue Package

Cyprus agreed to the outlines of an aid package, paving the
way for 10 billion euros of emergency loans to stave off the
threat of default. Russian companies and individuals have an
estimated $31 billion in Cyprus, according to Moody’s Investors
Service.

As part of the deal, the country’s second-largest bank will
be shuttered under pressure from a German-led bloc. The accord
imposes losses that two European Union officials said would be
no more than 40 percent on uninsured depositors at Bank of
Cyprus Plc, the largest bank, which will take over the viable
assets of Cyprus Popular Bank Pcl, the second biggest.

“Russia is ready to restructure the loan as soon as the
situation becomes more clear,” Oleg Vyugin, chairman of MDM
Bank in Moscow and a former head of Russia’s financial markets
watchdog, said by phone. “That seems to have happened.”

The east Mediterranean nation has officially asked Russia
to extend its 2.5 billion-euro loan by five years to 2021, the
Nicosia-based Finance Ministry said Jan. 10. The euro area’s
third-smallest economy borrowed the funds in December 2011 and
has also sought an additional 5 billion euros from Russia.

‘Decent Support’

Agreeing to a five-year extension and a cut in the interest
rate from 4.5 percent to 2.5 percent would amount to “decent
support” for Cyprus, Siluanov told reporters in Durban, South
Africa. He called on the country to resume banking operations as
quickly as possible and avoid imposing capital controls on
“well-functioning banks.”

Russia turned away Cypriot Finance Minister Michael Sarris
last week after failing to agree on concessions to ease terms of
the loan or provide new assistance. Sarris told reporters in
Brussels that Cyprus’s relationship with Russia “is not over,”
even as it has been “disappointed” by a financial-industry
overhaul that will lead to losses for Russian investors. Russian
Prime Minister Dmitry Medvedev said March 22 that his country
hadn’t “shut the door” on further aid to Cyprus.

European governments including Germany have insisted that
Russia bear some of the cost of rescuing Cyprus, arguing that
Russian businesses were using the island to launder money.

‘Carefully Monitoring’

“We are carefully monitoring the developing situation in
Cyprus,” Russian First Deputy Premier Igor Shuvalov told
reporters today. “We decided to wait for final decision to be
taken by the EU and Cyprus, and then we’ll consider if there’s a
possibility or necessity for extending Russian assistance.”

Cyprus’s plans to tax uninsured deposits amounts to theft,
Medvedev said, in a reprisal of a comment attributed to Vladimir
Lenin, who used it to refer to Bolshevik expropriation of
property belonging to the wealthy.

“They’re continuing, I think, to plunder the loot,”
Medvedev said today at a meeting outside Moscow. Russia is
assessing the implications of the latest deal, he said.